Today I’m just writing about something I hear all too often that makes me do a double take. That something is when I hear traders say “You Can Never Go Broke By Taking Profits.” Now on the surface a new trader may hear this and repeat to others like they have some sort of wisdom. I hear this and say its not 100% true.
Let me tell you a story about a trader who took profits all the time. He would take 1 point, 2 points, 3 ticks and sometimes 5 points or more. He would take profits and you would think hey that guys doing great, he believes in “You Can Never Go Broke Taking Profits.” Yes he did TAKE profits; but did he MAKE profit.
Let me continue, see this trader I talk about made profit the same way a business makes profit day in and day out. A business makes a sell and the trader closes a winning trade “CHI CHING!” Cash in the register for the business and cash in the account for the trader. If that was the end of it all traders and businesses would be rich. Ask yourself if they are making profit then why aren’t they all rich. The answer is simple…are you ready? EXPENSES!! That’s right, expenses are what the businesses and traders incur every month. The traders expenses I’m talking about is not his rent or internet bill or car note, it is his losses. Exactly, trading is a business and in business your income/profit has to be more than your losses/expenses.
The trader made what he considered “profits” when he closed a winning trade but he was not profitable at the end of the month. Why? Because his losses was greater than his “profits” so at the end of the month he had no profits. He would take $50, $200, $75 and whatever he could from a trade but his losses would be $200 $500 and sometimes $1000 or more per trade. He would lose in 1 trade what “profit” he did make for a whole week or 2 so at the end of the month this trader would be in the red and lost money for the month. So when I see “You Can Never Go Broke By Taking Profits” in chat room, on Twitter or Face Book or in a text somewhere I would tell the new trader or professional trader, “As Long As Your Profits Is Greater Than Your Losses”
What Do You Think?
Today seems like my targets was too far and the price was not making any pops. For a trend trader this would have been a good setup but for a momo trader like me, most of the time I like to be right or right out (notice I didn’t say all of the time). If I am up a point and half to two points in the green, I will more times than not take a +1 tick break even trade and not let the trade turn into a losing trade.